02-08-2010 - Restoring public confidence

All people deserve to feel confident that their government is working for them. Neil believes the next Governor of Hawaii needs to restore the public’s faith in government, which includes ensuring that taxes are fair and being spent wisely.

Last week, Neil wrote about his view on the state’s tax policies for the Garden Island newspaper in a column called “Leading Voices,” which regularly publishes opinions from Hawaii’s leaders. Neil’s column was published along with Lt. Gov. Duke Aiona’s stance on tax policies.

TAXES AND THE PUBLIC TRUST
Crafting tax policies
February 1, 2010

By Neil Abercrombie

Last year, as Congress discussed health care reform, a group of protesters emerged saying they stood for limited government and against taxes. Their opinions on health care are often based on misinformation spread by powerful private interests. I strongly disagree with their methods, which are meant to intimidate people and stifle dialogue. They believe government is the enemy; I believe our government is our responsibility as well as our opportunity.

But in some ways, I understand where they are coming from.

All people need to feel confident that their government is working and their tax dollars are well spent. It’s not a partisan idea. When my friend and colleague, U.S. Representative Ron Paul, introduced a bill to audit the Federal Reserve System, I joined a bipartisan group of eleven original co-sponsors of the bill.

But here at the state level, I’m sorry to say that public confidence has steadily eroded. People are seeing Hawai‘i’s government as an impediment in their lives rather than a partner. The stories of frustration I hear from Kaua‘i residents and across the state have little to do with public employees who are working hard with decreasing support, and everything to do with a lack of leadership. Taxpayers need to know how tax dollars are spent and that state government is competent and cares. This starts with strong leadership in the Governor’s Office.

For example, a strong leader is needed to make smart long-term decisions when times are good. Odd as it sounds today, at this time in 2006, the state had a budget surplus of $574 million. In 2007 the surplus was $732 million. However, instead of prudently investing to make our economy more resilient to the ups and downs of the global economy, the state was too focused on short-term spending measures and tax refunds. When the global economic meltdown occurred at the end of 2008, we could have been more prepared. Gov. Lingle is now proposing that we establish a fiscal stabilization fund that is funded during good times to help ease the bad. It’s a good idea that is better late than never.

Besides being wisely spent, taxes must also be fair. The general excise tax is a broad and easy-to-administer tax, but it is regressive — the less you earn, the higher the percentage of your income goes to taxes. In addition, Hawai‘i continues to be among the worst in the country for taxing the incomes of families living in poverty. Our current tax policy serves as a barrier to people trying to work their way towards family self-sufficiency. We can remedy this with a state Earned Income Tax Credit. This innovative policy will correct these unfair disincentives in the tax code, get more people to work in the economy, and improve the quality of life for all in the process.

I’ve indicated that all people deserve to feel confident in their government. A few months ago, a woman protesting the health care bill confronted me. When I asked her some questions, she broke down. It turned out that she was just frustrated with government because it had failed her when she rightfully needed assistance. We ended up having a heartfelt conversation, and I tried to point her to some places where she could get help.

We all pay taxes so we can have a government that works. That’s not a Democratic or a Republican idea. It is the very basis of democracy. We all pay our share for the benefit of all. When that premise is questioned, we rightly question those entrusted with public office. The duty of the next governor is to restore public confidence that our tax dollars and the public good are once more joined together.

Lt. Gov. Duke Aiona's column on tax policies:

GROWTH THROUGH INVESTMENT
Crafting tax policies
February 1, 2010

By James "Duke" Aiona Jr.

During these challenging economic times, it is critical for our state to encourage reinvestment into our local economy and provide a fair tax system that does not burden our citizens, families and small businesses with tax increases.

Economic hardship has led many families and businesses to tighten their belts to save money. Our Administration has also had to find new ways to cut spending while providing essential services for Hawai‘i residents. Right now, the worst thing the state could do is take more of your money by raising taxes.

However, some see Hawai‘i’s general excise tax — 4.5 percent on O‘ahu and 4 percent on the Neighbor Islands — as small compared to the national average sales tax of about 6 percent.

This is misleading because unlike a sales tax, an excise tax must be paid on goods and services every time they change hands, from the producer to the cargo ship to the retail store. In effect, Hawai‘i’s excise tax is equivalent to about an 11 percent sales tax. By the time a product reaches a consumer, these taxes have accumulated at each step and passed on in the price tag.

This results in high prices for goods that can be a heavy burden on our citizens when they are stretched to pay for basic necessities during these economic times.

We cannot tax our way to prosperity, and increasing the general excise tax, even 1 percent, would lead to job loss, hurt our tourism industry and, ultimately, jeopardize Hawai‘i’s long-term economic recovery.

In order to restore efficiency to Hawai‘i’s general excise tax without increasing the tax rate, we need to make sure that all businesses that enjoy exemption for the excise tax make a timely return for their taxes, as well as expressly claim their entitlement.

Over time, the general excise tax’s efficiency has been downplayed due to additions of exemptions from the tax for particular businesses. Many of these exemptions allow for businesses to avoid paying the general excise tax altogether. And because some businesses pay no tax, they file no tax returns.

We are all in this together. That is why the Administration’s supplemental budget includes the temporary use of the Transient Accommodations Tax from the counties to help balance the state budget until we recover from this national and global economic downturn.

In addition, the Cash Economy Enforcement Act of 2009, which took effect July 1, 2009, provides the Department of Taxation with additional resources and tools to investigate suspected violations of tax laws, especially cash-based transactions in order to make sure that all sectors of Hawai‘i’s economy are paying their share of taxes.

It ensures that those who transact business in cash pay the fair amount like others who deal in credit cards, checks and other traceable monetary dealings. This act also provides the department with various enforcement tools, including the authority to issue monetary fines and cease and desist citations.

However, making sure everyone pays their fair share of taxes is only part of an effective tax policy. Simply raising taxes on our residents and small businesses is not a solution. It’s part of the problem.

We must remain committed to enhancing the future prosperity of our great state, which begins with improving public education.

Our state’s number one resource is our people. Government’s job is to provide a fair tax environment that encourages their success and gets out of their way so they can do what Hawai‘i’s businesses do best: work hard, create jobs and invest back in our local economy.

James “Duke” Aiona Jr. is lieutenant governor of Hawai‘i. He is running for governor this fall.

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